Good Governance Guides

Good Governance Guide: No 2.3

Category: Orientation
Subject: Identifying Conflicts of Interest
Source: Chartered Secretaries Canada

Definition:

A conflict of interest is a conflict between the private interest of a person or entity in a position of trust and the interest of another person or entity that is reliant on that trust.

Types of Conflict of Interest:

1. Employee/Organization conflicts:

• Personal interest (direct or indirect) in employment related matters such as a contract or service supplied to the organization;
• Inappropriate use of organization’s facilities or property for personal or outside business activities;
• Assuming responsibilities with external employers/not-for-profit organizations/outside businesses that conflict with fulfillment of employment duties; and
• Inappropriate external directorships.

2. Employee/client conflicts:

• Direct/indirect personal interest in client matters; and
• Advice and actions intended to maximize variable compensation and personal trading profits.

3. Organization/client conflicts:

• Misuse of client information;
• Misuse of client property or delegated rights:
• Inappropriate soft dollar arrangements;
• Market manipulation;
• Inappropriate research or analysis or inappropriate use or disclosure of any research or analysis about a client; and
• Relationships with multiple clients with conflicting interests.

A policy dealing with conflicts of interest should include actual conflicts, potential conflicts of interest where there is a reasonable probability that an actual conflict will arise and perceived (but not actual) conflicts of interest if the perceived conflict will cause reputational damage to the organization.

The policy should stipulate whether it covers external Directors as well as officers and employees.

4. Directors:

Should Directors find themselves in a position of conflict at meetings than they should immediately declare their conflict and request that it be recorded in the Minutes. Where appropriate, the Director in conflict should excuse him/herself from that portion of the meeting involving the issue giving rise to the conflict. Further, that same Director should not subsequently discuss the issue with Directors. Finally, given the circumstances, the Director should note vote on the issue.